Pedigrees of power.

Author:Martin, Edward
Position:North Carolina's business dynasties - Cover Story
 
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Fewer than 50 Tar Heel business dynasties have survived. Here are a few that did, and a lot that didn't.

During the raucous debate over the North American Free Trade Agreement, Ross Perot often complained that 36 families in Mexico controlled 39 companies generating more than 54% of that country's gross national product.

It's hard to believe now, but there was a time when business in North Carolina was as much a family affair as relatively undeveloped Mexico remains today. That was before interstates made travel easy, before efficient capital markets made more money available to more people, before mass merchandisers and wholesalers delivered deadly blows to locally owned businesses.

Back then, families controlled fiefdoms throughout the state, their names synonymous with the places where they reigned: Cannon in Kannapolis, Broyhill in Lenoir, Reynolds in Winston-Salem. North Carolina was "a poor state that didn't have much potential for creating new wealth," Wake Forest University historian Paul Escott says, "so established figures remained in power a long time." But many of North Carolina's business dynasties have come crumbling down during the past two decades, a testimony to the difficulty of survival in a free-market economy where ideas and determination count more than family pedigrees. Typically, their demise is not as dramatic as the 1932 murder of playboy tobacco heir Z. Smith Reynolds or the untimely death of Cannon Mills heir Charles A. Cannon Jr., flying World War II's storied China "Hump." Most -- including such glamour names of industry as Duke, Hanes and Richardson -- have faded away because of disinterested heirs, thinning bloodlines or hostile takeovers. By various estimates, only 30 to 50 true dynasties remain in North Carolina. "Maybe it just became earnings vs. first-born," says Tom Lambeth, director of Winston-Salem's Z. Smith Reynolds Foundation. "Maybe something about families themselves changed. For whatever reasons, corporate dynasties are things of the past."

Some of the most successful dynasties faded first. No Reynolds heir or in-law has run what became RJR Nabisco since the '50s. It's been 65 years since the Dukes had anything to do with running the tobacco, textile and electric-power companies that made James Buchanan Duke a target of trustbusters in 1911.

The pace of this dynastic disappearing act has clearly picked up in the past decade. A variety of factors get the blame: tax laws that make passing on control difficult, the trend to bigness in many industries spurred by the need to be powerful globally and the simple lack of desire by second- and third-generation family members to work hard when there's so much money to play with.

Consultant Leon Danco, who created the Ohio-based Center for Family Business in 1962, defines dynasties as companies run by three or more generations and still controlled by heirs of the founder. The 1,400-member North Carolina Citizens for Business and Industry is uncertain how many family businesses in the state fit that description, but President Phil Kirk says the trend is clearly downward. Of the 100 largest private companies ranked last year by Arthur Andersen & Co. for BUSINESS NORTH CAROLINA, 76 are controlled by a family. Thirty-one of the CEOs founded their companies, indicating many are first- or second-generation enterprises.

"The incentive to start a business is there as much as it ever has been," says Mike Henderson, the partner in charge of the accounting firm's Carolinas family-business consulting practice. "But from the standpoint of the family issues and continuing as a family business, there are probably some reasons why it would have been easier if you go back 100 years, when you didn't have economic factors such as income taxes at play."

Nicholas B. Bragg, executive director of Reynolds House, the Reynolds family estate in Winston-Salem, researches dynasties such as the Fords and Vanderbilts. Although the Cecils of Asheville have noble British bloodlines, most patriarchs of North Carolina business are of humbler stock. Many of them were Civil War veterans or their sons who traded plows for ledgers.

"The first generation didn't have much education," Bragg says. "The second became interested in books, schools. The third became involved in the arts and culture. In most families, the first generation made the money, the rest coasted."

Only a fool would declare dynasties dead, however. Starting on page 30, we profile 20 families who are still influential in North Carolina business. Our list is hardly exhaustive. Dozens more could have been added, including the Blumenthals of Charlotte, the Fletcher/Goodmons of Raleigh, the Harvey/Blounts of Kinston and Greenville, the Shufords of Hickory...No one should underestimate the motivation to create an enterprise that can be passed on to heirs. Yet those who've managed to do so through several generations are the exception, not the rule. "Of each 100 family companies in North Carolina in 1924, 20 survived in 1979, and in 1993 the number in founding-family hands fell to 13," says Edmund Gant Jr., employee- and community-relations coordinator of Glen Raven Mills, a textile company founded by his great-grandfather in 1880. "Only three |of every 100~ are bigger now than in 1924. Glen Raven is proud to be one of three."

What's clear is that the survivors play on the strength of family control to offset drawbacks. "Family members bring loyalty and continuity you don't find in a company run by professional managers," says James Weekly, a UNC Charlotte business professor. "But loyalty is not an asset if you're incompetent." Surviving dynasties value tradition, but they don't stand on it. Take the Owens of Swannanoa, whose ancestor Dexter Owen was the ship cook on the Mayflower. Their family-owned Beacon Manufacturing Co. began making blankets in the 1880s. But in 1969, when Charles D. Owen Sr. got a good offer for the business, he took it. Ultimately, the company ended up as part of Cannon Mills Co. Two years after his father sold Beacon, Charles D. Owen Jr., now 58, opened a blanket factory two miles away. His regrouped Charles D. Owen Manufacturing targeted discounters such as Kmart and Wal-Mart. Today, Charles III, 34, is president. His 9-year-old son, Charles D. Owen IV, might someday take an interest in the business.

No matter how well a family manages a business, some forces are hard to counter. Prime examples include Cannon Mills Co. and Richardson-Vicks Corp., two famous North Carolina companies in which families lost control during hostile takeovers in the 1980s. Descendants of founder Lunsford Richardson, many of whom live in North Carolina, controlled more than 30% of the stock in the health-products powerhouse. But when Dutch conglomerate Unilever made a hostile bid in 1985, the family was forced to find a white knight in Procter & Gamble. "The very idea |of a takeover~ was preposterous," an heir told The Wall Street Journal at the time. "The world changed," says Mariam Cannon Hayes, 77, whose grandfather started Cannon Mills and who grew up in Kannapolis, the town Cannon Mills built. When her father, "Mr. Charlie," died in 1971, his mills made half the nation's towels and racked up $300 million in sales a year. By the early 1980s, assets totaled $250 million, including lots of real estate, and there was no long-term debt. With no Cannon in line to succeed "Mr. Charlie," professional managers were guiding the company.

Low debt and lack of firm family control proved a perfect opportunity for a wily financier like David Murdock, the corporate raider from Los Angeles. Borrowing heavily, he acquired the company for $413 million in 1983. Family members owned 27% of the outstanding stock at the time, mostly in four trusts and the family foundation. Three years later, Murdock sold two-thirds of the company to Eden-based Fieldcrest Mills Inc., which formed Fieldcrest Cannon Inc. "He just walked in and took it," says Hayes, president of the Cannon Foundation in Concord. "We never planned to sell it. We were not very happy -- that's the understatement of the year. It was very unfriendly." Hayes' son, state Rep. Robert "Robin" Hayes, who is president of Mount Pleasant Hosiery Mills Inc., still influences Tar Heel business and politics. But no Cannon heirs are involved with Fieldcrest Cannon.

The heirs of Krispy Kreme founder Vernon Rudolph lost their father's empire, but theirs was a quieter affair: Multinational Beatrice Foods Co. bought the flourishing Winston-Salem-based doughnut maker when Rudolph died in 1973. His five children were too young or too unmotivated to resist Beatrice's deep pockets and the eagerness of NCNB -- now NationsBank -- trustees to liquidate the estate.

"I'll bet Dad had 10 pages in his will about holding on to the company at all costs," says oldest son Carver Rudolph, owner of a Winston-Salem real-estate company. "But it made a neat little trust package to sell it and end up with liquid assets that were easily divisible. The bank was just covering its ass."

The Hanes family name still adorns underwear around the world. But the Winston-Salem company, which traced its roots back to the turn of the century when two brothers got out of the tobacco business (and from under the shadow of Dick Reynolds) and into textiles, is part of a Chicago-based conglomerate. Hanes Corp. had $450 million in annual sales when Consolidated Foods (now Sara Lee) Corp. gobbled it up in a hostile takeover in 1979.

But most dynasties die less spectacularly, typically due to managerial ineptitude. "Founders show an unwillingness to plan for mortality," Danco says. "You don't have to be old to be dead."

One of the sadder family-business stories in North Carolina may be Henderson-based Rose's Stores, which founder Paul H. Rose turned into a giant in discount retailing long before Sam Walton thought of Wal-Mart. A dramatic success from 1915 through the '80s, the family kept control of...

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